Corporate Governance and Accountability

&
International Business ethics

Lecture 13 & 14

Northern Caribbean University, - Kingston Campus

2 Learning Objective.

Students should be able to:

Define Corporate Governance

State Corporate Ethics
Discuss Corporate responsibility
 Sarbanes-Oxley act

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Introduction
 Corporate Governance
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 The framework of rules and practices by which a
board of directors ensures accountability, fairness,
and transparency in a company's relationship with
its stakeholders (financiers, customers,
management, employees, government, and the
community).

 The set of systems, principles and processes by which a company is governed.

 Provides the guidelines as to how the company can be directed or controlled such
that it can fulfil its goals and objectives in a manner that adds to the value of the
company and is also beneficial for all stakeholders in the long term.

Stakeholders in this case would include everyone ranging from the board of directors,
management, shareholders to customers, employees and society. The management of
the company hence assumes the role of a trustee for all the others.
 Corporate Governance
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The corporate governance framework consists of:
 Explicit and implicit contracts between the company
and the stakeholders for distribution of
responsibilities, rights, and rewards
 Procedures for reconciling the sometimes
conflicting interests of stakeholders in
accordance with their duties, privileges, and
roles, and
 Procedures for proper supervision, control, and
information -flows to serve as a system of checks-
and-balances.
 Corporate Ethics
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 The study of proper business policies and
practices regarding potentially controversial
issues, such as corporate governance, insider
trading, bribery, discrimination, corporate
social responsibility and fiduciary
responsibilities.

 Often guided by law, while other times

provide a basic framework that businesses
may choose to follow in order to gain public
acceptance.
7 Corporate Accountability
 The act of being accountable to the stakeholders of an
organization which may include shareholders employees,
suppliers, customers, the local community, and even the particular
country(s) that the firm operates in.

 In most jurisdictions, a body of corporate law has been developed

in order to formalize these requirements.
 Corporate Responsibility
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The way in which we operate with full
attention to and respect for ethics, the
environment, and positive social impact.

The concept that an organization has

obligations not just to conduct its business
and adhere to legal guidelines, but also
to look out for the welfare of its
employees, the community, and society
at large.
 Social Institution
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 Groups of persons banded together for common purposes

having rights, privilege's, liabilities, goals, or objectives distinct
and independent from those of individual members

Websters Dictionary
 Code of Ethics
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 A written set of guidelines issued by an organization to its workers
and management to help them conduct their actions in
accordance with its primary values and ethical standards.

businessdictionary.com

Three main types of Code of Ethics

 Codes of conduct or statement of business standards or
practises.
 Statement of core valves or the vision of an organisation
(credo, or mission statement)
 Corporate philosophies (describes the believes guiding a
particular company.)
 Ethics Programme
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Allows organisations to practise due diligence.
The seven steps:
1. The organisation must have established compliance
standards and procedures that are reasonably capable of
reducing misconduct.
2. Specific high level personnel must have been assigned
responsibility for overseeing compliance with the standards
and procedures.
3. The organisation must take due care not to assign substantial
discretionary authority to individuals with a propensity to
engage in illegal behaviour.
 Ethics Programme
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4. Standards and procedures must have been

communicated to all employees and agents
through such means as publications and
training programs.

5. The organisation must have taken reasonable steps to ensure

compliance by using monitoring and auditing systems and a
reporting system that employees may use
without fear of retaliation.
 Ethics Programme
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6. The standards must have been consistently enforced
through appropriate disciplinary measures, including
as appropriate, the punishment of employees who fail
to detect an offense by others.

7. After an offence has been detected, the organisation

must have taken all reasonable steps to respond
appropriately and to prevent further similar offenses.

Ethics and the Conduct of business

 Board of Directors
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Role in Corporate Governance:

 Exercise their right of control in the operation of the corporation.
 Exercise control through an audit committee that reviews financial
reports, a nominating committee that recruits new board members
and a compensating committee that sets the compensation
package for the C.E.O.
 Provide advise to top management team and offer crucial outside
resources.

Ethics and the Conduct of business

 Stakeholder
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 Those group who are vital to the survival and success of the
corporation.

 Any group or individual who can affect or is affected by the

achievement of the organisation’s objectives.
 Stakeholder Theory
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 States that corporation ought to be operated for the benefit of all
those who have a stake in the enterprise, including employees,
customers, suppliers and the local community.

Ethics and the conduct of business

 Suggests that the purpose of a business is to create as

much value as possible for stakeholders. in order to succeed and
be sustainable over time, executives must keep the
interests of customers, suppliers, employees,
communities and shareholders aligned and going in
the same direction.
 Stakeholder capitalism model
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 Stakeholder capitalism--a market system in which companies treat

the interests of all major stakeholders roughly equally, rather than
explicitly favouring investors--is attracting growing interest in these
recessionary times
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Shareholder
 Any person, company, or other institution that owns at least one
share in a company.

 Shareholders are the owners of a company. They have the

potential to profit if the company does well, but that comes with
the potential to lose if the company does poorly.
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Shareholder Theory

 Asserts that shareholders advance capital to a

company’s managers, who are supposed to spend
corporate funds only in ways that have been
authorized by the shareholders.
 As Milton Friedman wrote, “There is one and only one
social responsibility of business — to use its resources
and engage in activities designed to increase its
profits so long as it engages in open and free
competition, without deception or fraud.”
 Shareholder Wealth Maximisation
20 Model

 When business managers try to maximize the wealth of

their firm, they are actually trying to increase their
stock price. As the stock price increases, the individual
who holds the stock wealth increases. As the stock
price goes up, the value of the firm increases and the
net worth of the individual who owns the stock
increases.
 International Business Ethics

Lecture 14

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Northern Caribbean University, - Kingston Campus

 Learning Objective.

 Students should be able to:

 Identify the ethical dilemmas of

international business.
 Analyse ethical standards that apply in
International business.
 Explain the ethical Framework that
includes the principle of negative harm
and the principle of fundamental
international rights.

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 Introduction

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 International Business Ethics

 Requires that business decisions should not be made exclusively from the
narrow, economical perspective, but also the global social and ecological
concerns should be taken into account.

People who work in the business life should consider how their economical
decisions affect other people, environment or the society on the whole, not
only in the home country but also the host country. In other words, it means
that the interests of all the relevant parties, or "stakeholders" should be
acknowledged and weighed. Having defined the term theoretically, it should
be made clear that a uniform set of standards of business ethics, applicable to
the global community as a whole, is yet to be defined.

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 Globalisation

 The worldwide movement toward economic, financial, trade,

and communications integration.

 Globalization implies the opening of local and nationalistic

perspectives to a broader outlook of an interconnected and
interdependent world with free transfer of capital, goods, and
services across national frontiers. However, it does not
include unhindered movement of labour and, as suggested
by some economists, may hurt smaller or fragile economies if
applied indiscriminately.

Business Dictionary.com
w

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 Multinational Corporation (MNC)

A corporation that has its facilities and other

assets in at least one country other than its
home country. Such companies have offices
and/or factories in different countries and
usually have a centralized head office where
they co-ordinate global management. Very
large multinationals have budgets that exceed
those of many small countries.

An enterprise operating in several countries but

managed from one (home) country. Generally,
any company or group that derives a quarter of
its revenue from operations outside of its home
country is considered a multinational
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corporation. 6
 Foreign Direct Investment

 An investment made by a company or entity based in one

country, into a company or entity based in another
country.

 Foreign direct investments differ substantially from

indirect investments such as portfolio flows, wherein
overseas institutions invest in equities listed on a nation's
stock exchange.

 Entities making direct investments typically have a

significant degree of influence and control over the
company into which the investment is made. Open
economies with skilled workforces and good growth
prospects tend to attract larger amounts of foreign direct
investment than closed, highly regulated economies
investopedia.com

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 Home/Host Country

Home
The country in which the MNC originated and in
most cases has its head office.

Host

Country in which the MNC has a subsidiary or

other business operation

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 International Code of Conduct
General Principles:

 National sovereignty
when in “Rome do as Romans do”

 Equality
Everyone should be treated equally, non discriminatory
treatment.

 Market integrity
Allows for property rights, fair competition, contracts
and other free market conditions to operate.

 Human rights 2
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 Guidelines for MNC

 Rights
Thomas Donaldson proposed that corporations have an obligation to respect
certain rights especially those to be recognised as fundamental international
rights.

 Welfare
Richard De George offers seven basic guidelines.

 Fairness and Justice

Based on how corporation transact their business based on the guidelines of
rights and welfare.

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 Guidelines for MNC

Donaldson suggest the following fundamental rights to:

1. Freedom of physical movement

2. Ownership of property
3. Fair trail
4. Non-discriminatory treatment
5. Physical security
6. Freedom of speech and association
7. Minimal education
8. Political participation
9. Subsistence

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 Guidelines for MNC

Richard DeGeorge – seven basic guidelines MNC that

covers
Welfare state that Multinationals should :
1. Do no intentional direct harm
2. Produce more good than harm for the host country.
3. Contribute by their activity to the host country’s
development
4. Respect the human rights of their employees.
5. Respect the local culture and work with and not
against it.
6. Pay their fair share of taxes
7. Corporate with the local government in developing and
enforcing just background institutions. 3
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 Different Standards

MNC Double Standards

 MNC operating differently in host country from home office
 Doing in developing countries (host) what they wouldn’t do or allowed
to do at home.
 Engaging in practising not considered unethical in host country but is
known to be unethical in home country
 MNC not acting in host country with the same level of care,
accountability, standards, integrity and ethics as when operating in
home country.
 Different compensation package

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 Ethical Dilemmas of International Business

Labour Issues

 Exploitation of children as a labour force in developing countries has

been reported since the nineteenth century.
 Social awareness of the effects of working on children's health has
grown internationally since the 1990s, and the overall number of
children working has been decreasing ever since.
 The ethics conflict that arrives for managers in developing countries is
often a production price issue.
 Managers are forced to decide which is better: paying higher wages
to adults and losing profit, or keeping a higher profit while employing
children.
 For a business, failure to deal with the ethics issues surrounding child
labour can lead to negative press, consumer bans and decreased
customer loyalty in developed nations. 3
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 Ethical Dilemmas of International Business
Exploitation of Natural Resources
 Natural resources like land for agriculture or for waste disposal are finite.
Multinational corporations are often accused of exploiting natural resources
of third world countries.
 Examples include agricultural businesses that take the best land and grow
crops for exporting. This diminishes the amount of good land that locals can
use to grow their own food. Hazardous chemical industries and
pharmaceutical companies have been accused of take advantage of lenient
waste disposal laws, which can lead to human health problems and
environmental disasters.
Wage Issues
 Wage issues are another dilemma for managers doing business in
developing countries.
 U.S. corporations doing business in developing nations usually pay much
lower wages to third world employees than to American employees (Fieser,
University of Tennessee).
 This suggests a double standard of labor value. Note that if these
businesses pay wages to third-world employees that are higher than what
local businesses pay, they will attract the best workers, but also damage 3
indigenous businesses. 5
 Ethical Dilemmas of International Business
Bribery of Officials

 Bribery is one of the most common and controversial

issue than MNC faces.
 While bribery of government officials does occur in U.S., it
is severely punished when discovered.
 Bribery happens much more frequently in developing
countries, and there is a feeling that it is normal practice
to bribe authorities (Fieser, University of Tennessee).
 Bribery is universally condemned and no government in
the world legally permits the bribery of its own officials

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 Bribery

The act of taking or receiving something with the

intention of influencing the recipient in some way
favourable to the party providing the bribe.

Bribery is typically considered illegal and can be

punishable by jail time or stiff fines if authorities find
out about the bribe. (businessdictionary.com)

 Bribery is immoral, socially unacceptable, violation

of duty and unethical
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 Combating Bribery

Bribery occurs more frequent in the public sector

 Limiting government involvement and increasing the prominence of free market –

increased involvement of the private sector, reducing red tape government officers
discretionary actions

 Civil service reform – increased accountability, improved efficiency and transparency

 Careful selection of government projects, eliminating those that are most vulnerable to
bribery. Closely monitor the ones in implementation

 Creation and enforcement of anti – bribery laws

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 Transfer Pricing

 The price at which divisions of a company transact with

each other. Transactions may include the trade of supplies
or labor between departments. Transfer prices are used
when individual entities of a larger multi-entity firm are
treated and measured as separately run entities.

investopedia.com

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 Ethical Standards

 Principles that when followed, promote values such as trust, good

behaviour, fairness, and/or kindness.

 There is not one consistent set of standards that all

companies follow, but each company has the right to
develop the standards that are meaningful for their
organization.

 Ethical standards are not always easily enforceable, as they

are frequently vaguely defined and somewhat open to
interpretation ("Men and women should be treated equally "
or "Treat the customer with respect and kindness."). Others
can be more specific, such as "Do not share the customer's
private information with anyone outside of the company."
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businessdictionary.com 0
 Ethical Framework

Is simply a collection of things you believe in and

consistently abide by in your life. The things you allow to shape you.

A set of one or more ethical guidelines, which are designed to be applied

together to make an ethical decision

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 Positive and Negative Freedom

Positive freedom allows you to exercise control

over your own life, most defenders of this position
believe that freedom lies in self-realisation with the
individual (or even the state) making their own
decisions.

Negative freedom is a freedom in the absence of

coercion. In other words, you are free if no one is
preventing or encouraging you to act against your
wishes.

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 Negative Harm Principle

Mill’s harm principle is based on negative freedom

and claims that the sole end for those residing in a
mature and civilised society is self-protection,
whether as individuals or as a society on a whole

This means that power can only ever be exercised

over an individual against his will, if that individual
is harming (or threatening) others.

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 Fundamental International Rights

United Nation Declaration of Human Rights

1. All human beings are born free and equal in

dignity and rights.
2. They are endowed with reason and
conscience
3. Should act towards one another in a spirit of
brotherhood

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 MNC’s code of conduct

The main points which should be concerned by MNC is as follows

(1) Respect basic human rights & freedoms

(2) Minimize any negative impact on local economies
policies
(3) Maintain high Standards of local political
involvement
(4) Transfer technology
(5) Protect the environment
(6) Consumer protection
(7) Employment practices

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 Faith and Learning

Genesis 1:28

And god bless them. And God said to them. “ Be

fruitful and multiply and fill the earth and subdue it
and have dominion over the fish of the sea and
over the birds of the Heavens and over every living
thing that does move on the earth.”

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